1. Field of the Invention
The present invention relates in general to the problem of user verification and in particular to the problem of unauthorized credit card use and the reduction of the risk of fraud in point of sale credit card transactions.
2. Background Information
The invention described and claimed herein comprises a novel approach to reducing the risk of fraud in point of sale credit card transactions by providing independently-routed verification of the user's authorization by communication between the authorized user of record of the credit card and the issuer of the credit card through a trusted intermediary.
The term “credit card” is used to refer to any instrument by which an individual authorizes the request for an extension of credit or transfer of funds. It encompasses not only actual cards which are commonly referred to as “credit cards” but also debit cards and electronic “wands” and other tokens which are used to establish authority to extend credit or transfer funds.
The term “user” refers to the individual presenting the “credit card”; the term “user of record” refers to the individual who is authorized to request credit or the transfer of funds according to the records of the party extending credit or transferring funds pursuant to said request.
The term “POS” refers to a “Point of Sale” transaction.
In addition, the following abbreviations are used herein:
SRS System Requirements Specification
XML Extensible Mark-up Language
API Application Programming Interface
Ad Advertisement
CNS Credit card Network System
BS Banking system
POC Proof of Concept
BS Bank System
CNS Credit card Network service
APNS Applepush notification service
AT Actual Transaction
Credit Cards are increasingly becoming popular, with an increasing customer base year on year because of the convenient and rewarding experience. Credit Card issuers offer frequent flier miles, reward points, and other rewarding perks to attract users for regular usage and to maintain their interest in using the credit card services.
Some facts & figures of credit card holders in USA:
The U.S. Census Bureau estimates that there are 181 million credit card holders in the United States. This represents approximately 77 percent of the adult population of the U.S.
According to Census Bureau estimates, there are more than 1.4 billion credit cards currently in circulation in the U.S., whose 2010 population is roughly 308.8 million.
These figures mean that there are about 4.5 credit cards for every man, woman and child in the United States, or an average of 7.7 credit cards for each of the 181 million people who actually hold credit cards.
The Federal Reserve reports that credit cards are used more than 20 billion times a year in the U.S., with the total value of these transactions at about $1.9 trillion.
Based on the number of transactions and the number of credit card holders, the average card holder uses a credit card 119 times a year, for transactions averaging $88 apiece.
This comes to an average annual total of about $10,500 in credit card purchases.
There are many players in the credit card market, but there are a handful of clear market share leaders. Based on projections from the Nilson Report based on the data collected by the U.S. Census Bureau, here is how the credit card market looked in 2010:
Three companies command 86 percent of all U.S. credit card purchase volume. Visa is the clear front-runner with an estimated 38.5 percent of annual purchase volume, followed by a close race for second and third place with MasterCard at 24.3 percent and American Express at 23.2 percent.
Other significant players in the credit card market include Discover, various store-issued credit cards, and various oil company credit cards.
Visa has the most U.S. cardholders at 111 million, followed by MasterCard at 98 million.
American Express has a much lower number of card holders, but compensates for it with an up-market focus. At 44 million U.S. cardholders, American Express not only trails
Visa and MasterCard, but is edged out by Discover at 45 million. However, in terms of average annual purchase volume, American Express transactions total roughly $11,300 per card holder, compared with Visa at $7,300, MasterCard at $5,250, and Discover at $2,500.
Relative to their shares of purchase volume, Visa and MasterCard each have a disproportionate share of the debt outstanding, with Visa at 41.8 percent and MasterCard at 30.6 percent. In dollar terms, these portions of debt outstanding represent $388 billion and $284 billion, respectively.
The Mercator report estimates U.S. card issuers' total losses from credit- and debit-card fraud at $2.4 billion. That figure does not include losses that are borne by merchants, which probably run into tens of billions of dollars a year. These credit card fraud costs cardholders and credit card issuers as much as $500 million a year.
Credit Card POS losses take many forms, including:
Counterfeit Credit Card Fraud: This fraud accounts for 37% of all funds lost through credit card frauds. The fake card criminals use latest technology to skim information contained on credit cards.
Lost or Stolen Credit Card Fraud: Cards stolen from their cardholders or lost by them account for 23% of all card frauds. Often, cards are stolen from the workplace, gym, and unattended vehicles.
Identity Theft: Identity Theft has been on the rise in the recent years and can happen when criminals apply for credit card using someone else's credentials and personal information.
A 10-year low has been observed in the overall losses due to credit card frauds. According to an annual study by Javelin Strategy & Research, the number of fraud victims decreased 28 percent in 2010 from 11 million to 8.1 million. The total value of fraudulent losses also fell from $56 bn in 2009 to $37 bn in 2010. This has primarily happened because of the initiatives taken by the stakeholders of the banking industry to increase consumer awareness and hence prevent fraud.
However, billions of dollars of frauds are still happening at Point of Sale terminals because of non-involvement of the Card Holder.
Attempts to address this problem include Smart-Chip solutions, which use a card with an embedded microchip that requires the consumer to enter a unique PIN through a reader to make payment, and Near Field Communication Solutions which involve short distance wireless communication technology, which allows communication between two devices that either touch or are momentarily held close together.
The infrastructure required to enable these solutions is high and even using these solutions, fraud remains as demonstrated by the above statistics.